Corporate Therapeutics at the Securities and Exchange Commission

Abstract

Who sets the norms for the ways in which American public companies are governed? There are, of course, many answers to this question: the Delaware Supreme Court, influential scholars and other norm entrepreneurs, members of Congress through well-intentioned legation, the New York Stock Exchange and NASDAQ through their listing standards, the Business roundtable through its lobbying and litigation, institutional investors, and the “market” generally. The Securities and Exchange Commission (“SEC”), too, has been tinkering with corporate governance norms in the course of settling its civil enforcement actions. For many years the SEC has settled cases with therapeutic provisions called “undertakings.” These undertakings have required the creation of new management positions, adoption of new accounting and reporting practices, reconfiguration or corporate training programs, and establishment of specific board-level committees and procedures. One might ask whether the SEC has the expertise to design desirable corporate governance changes or whether the therapeutic provisions the SEC has demanded are the right ones or the best ones for the corporate defendants in question. This Article explores SEC’s use of corporate therapeutics as a remedial tool. It examines the kinds of “therapeutics” the SEC currently favors, and explores the question of agency expertise. The conclusion of this Article is a policy prescription. The SEC has been admirably forthcoming in articulating its policies regarding the imposition of civil penalties against corporations. This Article proposes that the SEC similarly articulate its policies regarding the use of therapeutic sanctions.